Florida's Hurricane Victims May Qualify For Special Tax Relief

PERSONAL FINANCE - TAXES

September 13, 1992|By Julian Block

An often overlooked tax break authorizes immediate relief for people whose homes and other property are damaged or destroyed because of natural disasters, such as last month's Hurricane Andrew. This relief provision, though, is only for those who suffer serious property damage.

The key restriction is that the law allows you to deduct just the amount of unreimbursed losses in excess of 10 percent of your AGI, short for adjusted gross income. What follows are answers to the most-often-asked questions by Hurricane Andrew's victims.

QUESTION: Just how tough are the restrictions on write-offs for casualty losses?

ANSWER: You are able to deduct unreimbursed losses only to the extent that the total amount in any one year - reduced by $100 per incident - is more than 10 percent of your AGI.

- Example. You have an AGI of $60,000 and a loss of $6,500, after subtracting $100 and any insurance proceeds that you may recover. With those numbers, there is no deduction for the first $6,000 - 10 percent of $60,000. You get to deduct just $500. Once AGI surpasses $65,000, forget about any write-off for that $6,500 loss.

Q: What kind of immediate relief is there for people whose property is damaged or destroyed by natural disasters?

A: Usually, casualty losses can be claimed only on the Form 1040 for the year in which they take place. But under a special provision that kicks in when the losses occur in places declared by President Bush to be disaster areas eligible for federal assistance, you qualify for quick tax aid.

You can choose between a deduction for the disaster area loss on the return you will file for 1992 or the one you filed for 1991, whichever does you the most good. Should you opt to deduct the disaster loss in 1991, you must use 1991's AGI in calculating the 10 percent limitation.

- Example. Because of Hurricane Andrew, your county is declared a disaster area. The hurricane causes $15,000 in uninsured damage to your residence. Your AGI for 1991 was $55,000 and your expectation is that this year's is going to be $60,000. The allowable deduction: 1992's is $8,900 - $15,000 reduced by the $100-per-occurrence rule to $14,900, then reduced by $6,000 or 10 percent of your AGI - whereas 1991's is $9,400, or $15,000 reduced by $100 to $14,900, then reduced by $5,500 or 10 percent of 1991 AGI.

- Tip. You do not run afoul of yet another restriction if your AGI is above a specified amount that is adjusted annually - $100,000 for 1991 - when this rule first went on the books - or $105,250 for 1992. What the restriction does is to disallow your write-off for most itemized deductions by 3 percent of the amount by which your AGI exceeds the specified amount for the year in question. However, this curtailment does not apply to casualty losses.